R. Butler

I agree with everyone else that the Plan needs to be made whole as soon as possible. If the participant doesn't repay than legal action can be brought against that participant. If you do a search on this topic, there is an article referencing AmSouth Bank V Carr. Its an Alabama case where the court ordered not only repayment, but also attorney fees and court costs.

I don't agree that you can rollover an RMD. See 1.402©-2 Q&A 7(a).

There are several threads on whether payroll deduction for loan repayments can be rescinded. A majority say yes. I don't necessarily agree (primariy based on Advisory Opinion 96-01A), but it seems to be safer to allow the employee to rescind. We actually do advise clients to allow the employee to rescind. The loan document (and the loan application) should define when a default occurs. If repayment isn't required via payroll deduction and the document provides for a cure period, the participant can bring the loan current during the cure period.

I don't see anything that changes 318 attribution.

Anti-alienation rule are disucussed in ERISA 206(d). Generally, civil suit judgments can't touch qualified retirement plan assets unless the civil judgment concerns a violation of fiduciary provisions of ERISA. Several court cases on point. One that I have an immediate cite for is Guidry V Sheet Metal Workers Nat'l. Pension Fund, 493 US 365. Hope this helps.

An employee is treated as a five percent owner if the employee is a five percent owner with respect to the plan year ending within the calendar year in which the employee attains age 70 1/2. Once an employee is a 5% owner, distributions must continue to the employee even if the employee ceases to be a 5% owner in a subsequent year.

At first glance the proprosed regs. clear up a lot of questions for me. Hopefully acloser reading won't raise more.

I would issue the 1099-R. There are penalties for failing to issue 1099's and complete the related filings.

Just a guess, but the plan probably states that former participant's forfeit nonvested balance after 5 one year breaks in service. You are not entitled to earnings on nonvested money. From the facts you presented, I don't see that you have been wronged.

Company has two plans one for Union Employees, one for Nonunion Employees. The Union plan has over 100 participants, the nonunion plan does not. Does the audit have to encompass both plans or just the union plan? Thanks in advance for any guidance.

The Truth in Lending Act provides that a lender is subject to Regulation Z if credit is offered or extended to consumers on a regular basis and such credit is subject to a finance charge or repayable in more than four installments. Credit will considered extended on a regular basis if concumer credit has been offered more than 25 times in a calendar year. Does this mean that there must be 25 new loans in a calendar year or is Regulation Z triggered once there are 25 outstanding loans in total? Thanks in advance for any guidance.

Yes. See IRS Notice 98-52, Section VIII. C. 1.

I agree with K man, the "amount involved" is only the lost interest on the contribution. The excise tax is assessed on the "amount involved". The excise tax is usually nominal. I have never seen written guidance on the applicable interest rate used to calculate the amount involved. We usually tie to the calculation to the prime rate (i.e. prime plus 1). Our reasoning is that the late contribution is a loan to the employer. Most of our loan documents tie the interest rates to the prime rate.

Interesting point about FICA/FUTA, hadn't really considered the possibility. In regards to hardships, 636(a)(1) provides that ....an employee is prohibited from making elective and employee contributions....Wouldn't the catch-up contribution be an employee contribution? In regards to the term "comparable", it seems pretty clear to me, but I could be missing something. I am pretty much a textualist. Unless the law leads to an unconstitutional result on its face, I don't try to determine the collective intent of 535 members of Congress. I agree that more guidance is needed. My biggest concern with the catch-up, is still whether a failed ADP test is a deferral limitation. I don't see it that way, since you can correct the test without refunds.

ERISAweasel, In response to your initial post where you question whether plan based deferral limits could trigger a catch-up. See 631(5)(B) of the Act. The last sentence of that section talks to plan based limits. Now many of our plans are likely going to eliminate any plan-based deferral limits. The need for the limit just isn't there anymore.

It does not appear that EGTRRA changes the rollover rules to SIMPLE IRA's. Odd.

Doesn't EGTRRA change that rollover rule?

I found my own answer. New DC plan shouldn't really be established until after the distributions from the terminated k plan. May work out better anyway, may be able to take advantage of EGTRRA with a short plan beginning 01/01/02.

Fiscal Year Plan, 10/1 - 9/30. Plan terminates 9/30/00, assets are distributed 12/15/00. Employer wants to adopt new S/H plan effective 10/1/01. Can we treat this as a "new" plan for safe harbor rules or does the fact that assets from the old plan were not distributed until 12/15/00 make this a "successor" plan. Any guidance is appreciated.

If the annuity contract is provided by an insurance company it should be reported on Schedule A. The insurance company should provide client with the data. If the insurance company does not provide the data the instructions to Schedule A provides guidance. Data for a V.A. goes in Part II. The specific lines depend on investments and how the contract is setup.

Tom, Thanks for the reply. I am having trouble with the last part of the response. (Its been hectic and my brains just not working good, not that it ever really works that well.) I am having difficulties seeing a scenario where statutory exclusions wouldn't solve the nondiscrimination problem. If we amend to 21 & 1 beginning 2002 than the "otherwise excludable" passes because nobody benefits in that class (the employees benefitting this year won't be "otherwise excludable" next year by virtue of hire dates and birth dates). The nonexcludables all benefit by virtue of the terms of a standard plan. Am I missing something?

I think I have a better idea than the initial post. Instead of making the plan effective 7/1, make it effective 10/1, but put a 3 month wait on eligibiity with quarterly entry dates. Since no interns were there on 7/1, no way any can enter this year. I would still define comp for the full calendar year to get bigger contribs for the owners. Better?

I've got a small firm (2 owners, 1 full time employee, a couple of interns) setting up S/H 401(k) prior to 10/1. Due to time constraints this year they will just do a Std. Prototype. The full time employee was hired in May 2001. Various interns were employed throughout the year. For this year we want the full time employee eligible, but not the interns (future years we will just do 21 & 1 to avoid the intern problem). On July 1, 2001 there were no interns. Could I make the plan effective July 1, 2001 (this would make a short plan year 7/1 - 12/31), define compensation over the full calendar year and then make the entry dates 7/1 and 1/1? This gets me the full time eligible an no interns. Any thoughts?

We haven't considered matching catch-up contributions in a safe harbor plan because it seems like the plan wouldn't automatically meet top heavy pursuant to §613(d) of the Act. I am still trying to determine if allowing just the catch-up contribution in a safe harbor plan prevents it from automatically satisfying top heavy. I don't think it would because the catch-up is still just a deferral, but I am not positive.

The correction is to deposit all deferral monies into the trust, including lost opportunity costs. The partners should contact an ERISA attorney immediately. From the tone of your message is sounds like this not just an inadvertent mistake, but rather a willful failure to make the deposits. There could be both civil and criminal penalties.